|
BIG PMC FRAUD
The depositors left in the lurch !Malladi Rama Rao
After protests from account holders, the RBI raised the amount to Rs 10,000 The Rs 6,500 crore fraud engulfing the Punjab and Maharashtra Bank (PMC), founded in a small room in Mumbai in 1984, shows that neither the RBI nor the government agencies have learnt any lesson even two decades after the failure of Madhavpura Mercantile Cooperative Bank in 2001.
PMC Bank crisis
India’s urban cooperative
banking system is two
centuries-old. Its problems
remain the same – Politicianbanker nexus, poor corporate
governance and slackness on
the part of watchdogs, besides
exposure to a single lender most often
in the real estate sector, stock market
or gold business – all the three
deemed sensitive by the RBI. How RBI allowed the PMC to get away with its shenanigans for so long remains a Sudoku. It claimed that cooperative banks have been done in by poor management, which is not under RBI supervision are neither here nor there. The BJP-led Maharashtra government also cannot escape the blame since PMC functioned under its very nose in Mumbai.One of the directors on PMC Board is the son of a local BJP legislator. Depositors protesting outside the RBI's office in Mumbai Towards end - September, the RBI woke up to the gravity of the crisis in PMC which has left in the lurch over 51,000 depositors. And appointed an administrator. Initially it had limited withdrawal from each account to just Rs 1,000. But after widespread protests’, raised the amount substantially. Between January and September,three cooperative banks came under similar or harsher restrictions; these are Kolikata Mahila Cooperative Bank and United Cooperative Bank from West Bengal, Hindu Cooperative Bank from Punjab taking the number of Urban Cooperative Banks under RBI watch to ten. But PMC attracted media attention because it is a large cooperative bank that had reported for 2018-19 a deposit base of over Rs 11,000 crore and net profit nearly Rs 100 crore even as sticky loans (nonperforming assets, NPAs) more than doubled between FY19 and FY 18up - from 1.05% to 2.19% at the end of March this year.
HDIL MD Sarang and Rakesh Wadhawan being produced in the According to investigators, PMC Managing Director, Joy Thomas, who is presently in police custody, camouflaged HDIL’s 44 bad loans in nearly 21,000 fictitious accounts. Most of these accounts were dormant but were secured with passwords to protect them from being detected during RBI inspection. PMC chairman, Waryam Singh, played no less significant role in the whole deal. He was an associate of Wadhwans and was on the board of HDIL between 2006 and 2015 with close to two per cent stake in the company. Before joining the PMC he sold his entire stake in the real estate company.
Waryam Singh
“The conduct of the bankers is
intentional and has led to omission
and non-compliance which points
out their direct role in helping the
borrower. PMC employees
tampered with the software and
that is why the 44 accounts mentioned in the FIR did not
reflect in the system”, a senior
police officer privy to the
investigation was quoted as saying. PMC's exposure to HDIL group is nearly 73 per cent of its total loan book size of Rs 8,880 crore (as of September 19, 2019).Under RBI regulation, a single entity exposure limit for banks is 15 per cent of their capital fund while it is 20 per cent for group companies.
Former MD of PMC Bank Who the whistleblower on PMC is unclear. Some reports say that a PMC board member revealed the actual balance sheet to the RBI and thus compelled managing director Thomas to make an open confession of the fraud he and his cohorts have perpetrated for over a decade. All this amounts to breaking the RBI rules for six-seven years. Just days before the RBI stepped in, in the month of September, also PMC advanced Rs 96 crore to the promoters of HDIL ignoring the fact that the real estate firm has gone bust and was facing action under Insolvency and Bankruptcy Code. Who the whistle-blower on PMC is unclear. Some reports say that a PMC board member revealed the actual balance sheet to the RBI and thus compelled managing director Thomas to make an open confession of the fraud he and his cohorts have perpetrated for over a decade. RBI REASSURANCEExpectedly, the Reserve Bank of India, wants to reassure the public.“There are rumours in some locations about certain banks, including cooperative banks, resulting in anxiety among the depositors. RBI would like to assure the general public that Indian banking system is safe and stable and there is no need to panic on the basis of such rumours," the Reserve Bank said in a tweet on Oct 1. The market did not take the advisory seriously and the Nifty Bank index tanked by 1.30 per cent in intraday trade that very day. Well, concerns regarding stress in the financial system are such. PMC depositors are in a state of panic; their trust in the banking systems shattered. At least three depositors have died of shock and dismay unable to grapple with the reality that insurance cover for their money is limited to just one lakh rupees. Thousands of them are regularly staging protests at the PMC headquarter at Bhandup, in northeast Mumbai and its 137 branches in Delhi, Karnataka, Goa, Gujarat, Andhra Pradesh and Madhya Pradesh besides Maharashtra. Devendra Fadnavis The Maharashtra government has washed off its hands. “Unfortunately, a revival package for PMC bank is not in jurisdiction of the state government”, Chief Minister Devendra Fadnavis told an election rallies in Mumbai and Pune as the PMC scam became a poll issue. He floated the idea of merger of PMC with some other entity but said he would “pursue the matter after the assembly polls”. NO PROMISE !
Nirmala Sitharaman
Union Finance Minister Nirmala
Sitharaman has not held out any such
promise though. ‘Under watch’ banksThere are in all 54 urban cooperative banks nationwide. Of them, 11 are under RBI scanner long before PMC has hit the headlines. Significantly, most of these ‘under watch’ banks whose lending is freezed and deposit withdrawal capped are in Maharashtra. Why people prefer coop banks?The USP of Coop-Banks is higher interest rate. They also provide financing with less hassles to agriculturists, rural industries and to trade and industry of urban areas. However,deposits up to Rs 1 lakh are insured like in any nationalized banks.Together, UCBs account for four per cent of deposits and three per cent of outstanding loans in the banking system.. Who controls coop banks?The answer is simple: the promoters control and they are generally close to local politicians. This is an inherent weakness, for which no remedy is in sight. The RBI only supervises their banking ops, and has no full control which rests with the state government concerned. PMC triggers crisisPMC troubles are set to trigger a new round of crisis in the banking sector, firstly because it is amongst the top five in the segment with the status of scheduled bank, and, secondly, because several cooperatives have parked their funds with it. As many as 1, 754 cooperative credit societies, 15000 cooperative housing societies and several cooperative entities have made deposits with PMC, which, according to a media report, was to play the white knight to the City Cooperative Bank and Mapusa Urban Cooperative Bank as well. |